Question

now? 3. Use the graph below to answer the following questions. 54.00 Supply 3.00 Demand 10,000 20,000 Quantity Be sure to show all calculations. (25 points) a. What is the value of the consumer surplus after a binding price ceiling? b. What is the value of deadweight loss after a binding price ceiling? c. What is the value of the producer surplus before a binding price ceiling?

Answer 1

Ans) 1) When government imposes tax, price paid by buyers increases while price received by sellers decreases. That is, both consumer and producer surplus decreases.

Option d.

Tax on suppliers t Tax Pb tax burden on buyers tax burden on sellers Ps

2) Price ceiling is the legal maximum price that can be charged for any product. A binding price ceiling is below the equilibrium price and causes shortage i.e quantity demanded exceeds quantity supplied.

Pp Price ceiling consumer surplus DWL producer surplus qu a to

shortage AS 200 Q Q

now? 3. Use the graph below to answer the following questions. Price $4.00 Supply * Before price consumer surplus c Eqm ceiling Demand 10.000 20,000 Quantity producer surplus Be sure to show all calculations. (25 points)

now? 3. Use the graph below to answer the following questions. Price $4.00 After price ceiling Supply 3.00 consumer 0 2.0 Surplus deadweightloss E 10 F Demand 10.00 20.000 Quantity producer surplus 1 .

Before price ceiling ÷

consumer surplus = 1/2× base × height = 1/2× 20,000×(4-2) = $20,000

Producer surplus = 1/2× base × height = 1/2× 20,000×(2-0) = $20,000

After price ceiling ÷

Consumer surplus = ar of triangle A + ar of square B and D = (1/2× base × height ) + (length × breadth) = (1/2× 10,000×1) + (2×10,000) = 5000+20,000 = $25,000

Producer surplus = 1/2× base × height = 1/2× 10,000×(1-0)= $5000

Deadweightloss = 1/2× base × height = 1/2× (20,000-10,000)×(3-1) = 1/2×10,000×2 = 10,000